Millers have increased the price of an 80-kg bag of wheat flour from Rs1,110 to Rs1,130 due to rising wheat prices, says a former chairman of Pakistan Flour Mills Association (PFMA), Akhtar Hussain. As a result, the per kg price of average quality wheat flour has risen from Rs16 to Rs16.50 per kg — and in some areas to Rs17 per kg, a random survey of retail markets showed.
Chakkiwalas (traditional small millers) have raised the prices of finer quality flour rather more sharply — by Re1 to Rs18-Rs18.50 per kg.
Costlier wheat flour would lead to price-hike of a variety of food items including all kinds of breads thus stoking food inflation further. In eleven months of this fiscal year, food inflation rose by 10.3 per cent against 6.8 per cent last year.
Flour millers say the price of the milling quality wheat rose to Rs1,215 per 100-kg in the third week of June from Rs1,150 at the end of April. And Chakkiwalas say the price of the finest quality wheat, which they use for producing special quality flour, jumped to Rs1,270 per 100 kg.
That is why the flour produced by Chakkiwalas has risen more sharply than the flour produced by the mills. Wheat millers get part of the required quantity of wheat from the government at subsidised rates and purchase the rest from the open market. But Chakkiwalas do not get subsidised wheat and buy their entire requirement from the market.
Whereas millers meet 80 per cent of wheat flour demand in Karachi, the Chakkiwalas cater to the remaining 20 per cent. Wheat was trading at Rs1,180 per 100 kg immediately before the announcement of the budget on June 9. Traders say that the price rose further after the budget in anticipation of a post-budget general price-hike.
The budget for the next year has given birth to inflationary expectations. But hoarding and smuggling are mainly responsible for a gradual price-hike since end-April.
“Traditionally wheat supply is so strong in April-June that we buy it on credit,” says Qazi Afzal Abid, a former chairman of the PFMA. “The reason why wheat prices are up this summer is that traders are hoarding the commodity and some of them based in the Punjab are also smuggle wheat to Afghanistan.” Mr Abid said hoarding started right after the market got wind of the poor wheat harvest in the United States and Australia months ago.
The government says there was a bumper wheat crop of 23.5 million tons this year up, 10.5 per cent from that of the last year. It also claims that the country currently has at least 1.5 million tons of surplus wheat. “So the recent increase in wheat prices is largely because of hoarding,” admitted an official of the Ministry of Food & Agriculture but he said that the responsibility of cracking down upon the hoarders primarily lies on provincial governments.
Some flour millers cite another reason for wheat price hike. They say that wheat price shot up to Rs1,225 per 100-kg after the government had announced to allow its export. When it reversed the decision in late May exporters offloaded their stocks in local market and the price fell to Rs1,180-1190 per 100 kg. “Now they have slowed down local sales and the price is rising again,” one of the millers said.
The way the government first allowed wheat export and then suspended it all of a sudden shows the lack of proper homework by the officials concerned. The government suspended wheat export after the exporters started large scale buying of wheat for exports and that pushed up prices of wheat and wheat flour.
Insiders say even at that time it was hoarding of wheat by big traders that had caused a price-hike, as wheat production was surplus. Instead of cracking down on hoarders to make wheat supplies available both for the millers as well as the exporters, the government chose the easy way out and suspended exports.
But since hoarders are still at play, the root problem remains unresolved i.e. the increase in wheat and wheat flour prices.
Insiders say that some unscrupulous wheat millers were also responsible for pushing up wheat prices when its export was allowed. “These millers had got wind of the government decision to allow wheat export much earlier and had indulged in heavy purchases on credit. When the exporters entered the market to buy wheat for export they were too late and the traders had no option but to demand higher prices because they had sold much of the stocks on credit, said a flour miller who refused to be named.
“Even now some millers have joined hands with the hoarders and Food Department can ascertain this by verifying their stocks,” he said.
It is not only wheat whose prices have gone up due to hoarding. The prices of rice have also skyrocketed during the last six months. A random survey of retail markets showed that the prices of various kinds of Basmati rice had risen from Rs35-Rs50 per-kg in December last year to Rs45-Rs75 per kg. And the prices of non-Basmati rice had gone up from Rs20-Rs30 per kg to Rs30-Rs40 per kg.
A rice trader based in Jodia Bazar said that the prices of almost all varieties of rice had escalated at least 30-50 per cent since December 2006 chiefly due to hoarding. He said it all began when news about a shortfall in Pakistan’s and India’s rice crops started taking rounds in the media. Initially some unscrupulous traders resorted to hoarding of rice but later on, some reputable rice millers also joined in. Rice millers say, however, that a decline in the targeted crop size is the main reason for increase in rice prices.
Rice production fell to 5.438 million tons this fiscal year, 4.6 per cent lower than the target of 5.7 million tons and two per cent less than the last year’s production of 5.547 million tons. It is a queer logic to link skyrocketing of rice prices to such a nominal decline in production.
What else lends credit to hoarding for rice price-hike is that unlike the popular belief, rice exports in terms of volumes have not risen, they have rather declined, leaving more for local consumption. In July-May FY07, Pakistan exported 2.657 million tons of rice against 3.107 million tons in July-May FY06.
Wheat flour and rice are two staple food items in Pakistan and even the poorest of the poor use them. The way the government has let rice price-hike go unchecked for the last six months brings its claims of fighting inflation under question. And the way wheat hoarders are enjoying a free hand with no fear of government intervention points to the lack of political will and absence of effective administrative tools to check bad business practices.
Be it the price-hike of wheat and rice or other food and non-food items like dried milk, oil and vegetable ghee, paper and steel products, inflationary expectations are also at the heart of the problem.
There is always something that keeps these expectations alive — sometime news of short crops or short supply in local and world markets and sometime budgetary measures etc. And the most common perception in the market is that the government and the central bank would not be able to contain inflation.
Repeated failures of the government and the State Bank in keeping inflation within the targeted level strengthen such a belief.
Millers have increased the price of an 80-kg bag of wheat flour from Rs1,110 to Rs1,130 due to rising wheat prices, says a former chairman of Pakistan Flour Mills Association (PFMA), Akhtar Hussain. As a result, the per kg price of average quality wheat flour has risen from Rs16 to Rs16.50 per kg — and in some areas to Rs17 per kg, a random survey of retail markets showed.
